Claim of Exemption from Capital Gains by Legal Representative filing ITR

Facts of the case :

  1. Assessee transferred a capital asset resulting in a Capital Gain but died before filing his Income Tax return / making deposit or investment for purpose of exemption u/s 54.
  2. Now, legal heirs / executors (if will is made) will file ITR as Legal Representative u/s 159.

Query raised is : whether L/R can make investment u/s 54 & claim exemption?


A similar situation arose In the matter of C.V. Ramanathan vs Commissioner Of Income-Tax (1980 125 ITR 191 Mad) wherein the Hon’ble Madras High Court held ::

The legal representative cannot be differentiated from the assessee for this purpose. If he was liable to pay the tax, he cannot be denied the benefit of Section 54 which forms part of the scheme of taxation of capital gains.

The Andhra Pradesh High Court in the case of Late Mir Gulam Ali Khan Vs. CIT, (1987) 165 ITR 228 (AP) has held that

“the object of granting exemption under Section 54 of the Act is that an assessee who sells a residential house for purchasing another house must be given exemption so far as capital gains are concerned. The word “assessee” must be given wide and liberal interpretation so as to include his legal heirs also. There is no warrant for giving too strict an interpretation to the word “assessee” as that would frustrate the object of granting exemption.”

In the matter of Bajaj Tempo Ltd v CIT 1992 AIR 1622 (SC), related to Deduction under Chapter VIA – the Supreme Court has held that

“Therefore, a provision in taxing state granting incentives for promoting growth and development should be construed liberally. Consequently, the restriction on it, too, has to be construed so as to advance the objective of the section and not to frustrate it. Adopting a literal interpretation would result in defeating the purpose of section 15C. Therefore, it becomes necessary to resort to a construction which is reasonable and purposive to make the provision meaningful“.

Accordingly, a purposive & meaningful interpretation of Section 54 r/w Section 159 is likely to be taken by the Revenue & Courts of Law.

Having regard to the above Jurisprudence, the L/R of the deceased may opt for Exemption u/s 54 of the I T Act, 1961.